The euro zone is stuck in neutral as its German engine sputters

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Obsession

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Written by

Obsession

Zero, zip, zilch, nada. In the second quarter, the euro zone stood still (pdf).

Stagnant GDP is a setback for the bloc’s slow but steady recovery from its devastating debt crisis—analysts were expecting another quarter of modest growth, akin to the unspectacular 0.2% average over the previous year.

Most worryingly, in the latest quarter the German economy actually shrank slightly, by 0.2%, a sign of trouble in the euro’s engine room. We already knew that Italy has slipped into a triple-dip recession, and the news that French GDP was flat in the second quarter didn’t come as a big surprise.

French officials just slashed their growth forecast for this year, to 0.5% from 1%, and hinted that they will miss deficit-reduction targets, too. Germany, meanwhile, pinned its second-quarter stumble on unusual weather, and still expects to grow by a respectable 2% this year.

The latest numbers still give Paris at least some bragging rights over Berlin, which it often criticizes for not doing enough to promote growth across the euro zone (and to deflect attention away from its own sickly economy). But it’s dangerous to make grand pronouncements based on tenths of a percentage point—take a step back, and the data shows that the euro zone economy has yet to make up the ground it lost since its 2008 peak. At its current rate of patchy, negligible growth, it will be a long while before it does.

Of the bloc’s largest economies, only Germany has recorded a “recovery” worthy of the name in recent years:

But things could be worse—year-over-year GDP was up by 0.7% in the latest euro data. And although stocks sank and bonds rallied when the numbers first came out, these trades were gradually unwound as investors digested the news and moved on to more important things. Sadly, stagnation is nothing new for the euro zone.